MBABANE – The Revenue Appeals Tribunal Eswatini (RATE) has delivered a definitive judgment that serves as a critical interpretive guide for the kingdom’s real estate and construction sectors.
In a case involving one of the nation’s leading property developers and the Eswatini Revenue Service (ERS), the tribunal clarified the mandatory nature of value-added tax (VAT) apportionment when a business engages in ‘mixed supplies.’
The ruling, which centred on a E6.5 million dispute over input tax credits, underscores the strict legal boundaries within which developers must operate when managing projects that span both commercial and residential markets.
The legal battle began following a comprehensive tax compliance audit conducted by the ERS for the tax period spanning January to March 2024.
The appellant, a prominent player in the local property development landscape, had initially declared a VAT refund of E560 948.05.
However, upon verification, the ERS adjusted the claim downward, issuing an assessment that reduced the refund to E220 642.37. The discrepancy – amounting to over E340 000 – stemmed from the treatment of ‘mixed supplies.’
In the world of Eswatini tax law, commercial property leasing is a taxable supply (subject to 15 per cent VAT), whereas residential property leasing is generally an exempt supply. Since the developer was involved in both, the ERS applied the statutory apportionment formula to the developer’s total input tax.
The developer challenged this assessment, specifically arguing that a massive invoice of E6 555 000 (carrying a VAT component of E855 000.00) should have been exempted from the formula.
The developer contended that this specific expenditure was linked 100 per cent to the construction of a commercial shopping centre and should therefore be fully deductible, rather than diluted by the apportionment ratio. The crux of the developer’s argument rested on the ‘direct attribution’ principle. They argued that if a cost can be traced solely to a taxable activity – like a shopping mall – it should not be lumped in with general overheads or residential costs.
They further argued that including this specific invoice in the apportionment calculation resulted in ‘double taxation’ and an unfair financial burden that violated the principle of VAT neutrality.
The developer sought relief under Section 28(10) of the VAT Act of 2011, which allows the commissioner general to authorise an alternative method of calculation if the standard formula does not provide a ‘fair and reasonable’ result.
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